Costco Wholesale

Sol Price, along with his son Robert took a risky move in the mid-70s that would redefine wholesaling industry — they pioneered what is now termed “warehouse retailing.” In this business model, business owners operate warehouse stores located in the city outskirts, where buildings and real estate property are priced lower. Consumer products are bought directly from the manufacturers and delivered straight to these warehouse stores, where they are sold by the bulk at cheaper prices than that in department stores.

Price Club, the company formed by Sol and Robert Price, opened its first warehouse store in San Diego in 1976. Although its first year of operations wasn’t profitable, the second year saw Price Club flourishing. Soon after, Price Club was able to rapidly recover its capital and open another warehouse store in Phoenix, Arizona in 1978. Eventually, Price Club became a leading name in the warehouse retailing industry.

Jim Sinegal, an executive vice president for Price, broke from Price Club and went to create Costco Wholesale Corporation in 1983. Costco’s marketing and distribution structure copied heavily from Price’s designs. By 1988, Costco became Price’s fiercest competitor, with expansions reaching Canada and annual profits amounting to $2 billion.

In 1993, when growing competition threatened both Price Club and Costco Wholesale, the two companies entered into a partial merger just after Price’s earnings dropped to 40%. The new company, named PriceCostco, Inc., focused heavily on international expansion, opening stores in Mexico, South Korea, and England. Despite best efforts to recover losses, sales continued to drop. Disagreement between the two leaders, Robert Price and Jim Sinegal, regarding company direction and recovery policies soon left the merger in tatters. The breakup was formally announced in 1994. Price’s breakaway company was named as Price Enterprises. Sinegal still continued to manage PriceCostco, Inc.

In 1997, the name of Sinegal’s company was changed to Costco Wholesale.

Presently, Costco is now the largest warehouse store chain in the world in terms of sales volume. Although it faces heavy competition with Sam’s Club with the latter having more warehouse stores, Costco has a larger membership base of 51.8 billion members.